America 1946 - The war was over. Thanks to its industrial base untouched by enemy bombs and labor of the nation's work force, including women signified by "Rosie the Riveter," American industry had churned out the war materiel that enabled American and Allied fighting men to take the war to the heartland of the enemy. The Third Reich and Imperial Japan were finished.
Government purchases of war materiel had lifted America out of the decade-long Great Depression. Even with higher taxes, shortages of civilian goods, rationing, and price and wage controls, most American civilians lived far better during the war than during the Great Depression.
But now the war was over. With the cancellation of huge defense contracts, would America sink back into depression? Many people feared that we would. But instead of sinking back into depression, conditions were set to propel America into several decades of economic expansion and widely shared prosperity - the "Golden Years of Capitalism."
After a decade of economic depression and nearly another half decade of wartime shortages, there was a tremendous pent-up demand for farm and industrial machinery and equipment, automobiles, housing, furniture and appliances, and related goods and services. And, of crucial importance, consumers had the income and savings, much of it accumulated through purchase of war bonds, to make demand for those products and services effective.
Returning veterans easily found employment during the conversion from wartime to peacetime production. The GI Bill made available low-interest loans for returning veterans to buy homes for their new families. It provided college and technical training to millions of returning vets who would be the technicians, managers, and professionals of a skilled work force.
Factories retooled worn and outdated physical plant with modern equipment. Science and technology, much of it a by-product of defense-related research, created new products and led to greater production efficiencies.
It was also a golden age for American labor. Union membership increased dramatically, reaching a peak in the 1950s. One need not have been a union member or agree with every union action to appreciate the contribution that organized labor made to expansion of the middle class. A factory worker with a high school education and a good work ethic could purchase a home and raise a family as a member of the expanding middle class. Much of the growth came from movement of low-income farm workers into better paying jobs in towns and cities - a process largely completed by 1960.
In an effort to avoid mistakes made after the First World War, such as the disastrous Treaty of Versailles that punished Germany and created the conditions that led to, first, hyperinflation, then to the rise of Adolph Hitler, America strived to make capitalist allies of our former enemies - a process made more urgent with the Soviet Union emerging as our Communist rival. American aid of $1.8 billion to Japan and $13 billion to Europe through the Marshall Plan tied reconstruction to American export needs, adding to aggregate demand.
Prior to the Great Depression, during the 1920s, income inequality had increased. The financial crisis of 1929 precipitated the Great Depression of the 1930s. During the post-war economic boom with an expanding middle class, income inequality was reduced, both cause and result of economic expansion. Prosperity during the "Golden Age" was fairly evenly distributed across economic classes.
With memories of the Great Depression still freshly in mind, Americans had no desire to return to economic stagnation and unemployment. Congress passed the Employment Act of 1946, declaring federal objectives of full employment, full production, and stable prices. The act created the Council of Economic Advisors with the objective of analysis and advice on development and implementation of a wide rage of economic policy issues.
Central to macroeconomic stabilization during this golden age was what economists refer to as "counter-cyclical stabilization." During recession, taxes would be reduced and government expenditures increased to moderate the decline. During economic expansion, taxes would be increased and government expenditures curtailed to prevent inflation and keep the economy from overheating.
This Keynesian approach was widely accepted during this era. For example, during the 1953-54 recession, even though Council of Economic Advisors Chair, Arthur Burns, deployed standard Republican rhetoric, he supported an activist counter-cyclical fiscal policy. The recession was mild and short.
On a personal note, I learned my practical economics growing up on that dairy farm in the hills north of Monroe. I learned my academic economics from professors for whom the Great Depression was the defining economic event in their lives. I found no conflict between the practical and the theoretical as I learned it. The application of relevant concepts and theory to solution of real economic issues made perfect sense to me.
While there are technical issues with counter-cyclical fiscal policy, the major problems in its application are political - possible grist for a future column. Keynesian economics fell out of favor about the early 1970s, partly as a result of the rise of the "Monetarist School" of economics, and, arguably, because of ideological opposition - and maybe because memories and lessons of the Great Depression were becoming dim with time.
All told, a lot of things fell into place or were put into place during The "Golden Age of Capitalism." Not all was perfect - farm prices were to fall victim to surplus production in the 1950s, and women and minorities suffered discrimination in the work place.
But after WWII, America had emerged with an economy incomparably stronger than in 1941, larger and richer than any other in the world. American economic domination over at least the next quarter century had been secured.
Next week: More on America's Golden Age of Capitalism.
- John Waelti's column appears every Friday in the Times. He can be reached at jjwaelti1@tds.net.
Government purchases of war materiel had lifted America out of the decade-long Great Depression. Even with higher taxes, shortages of civilian goods, rationing, and price and wage controls, most American civilians lived far better during the war than during the Great Depression.
But now the war was over. With the cancellation of huge defense contracts, would America sink back into depression? Many people feared that we would. But instead of sinking back into depression, conditions were set to propel America into several decades of economic expansion and widely shared prosperity - the "Golden Years of Capitalism."
After a decade of economic depression and nearly another half decade of wartime shortages, there was a tremendous pent-up demand for farm and industrial machinery and equipment, automobiles, housing, furniture and appliances, and related goods and services. And, of crucial importance, consumers had the income and savings, much of it accumulated through purchase of war bonds, to make demand for those products and services effective.
Returning veterans easily found employment during the conversion from wartime to peacetime production. The GI Bill made available low-interest loans for returning veterans to buy homes for their new families. It provided college and technical training to millions of returning vets who would be the technicians, managers, and professionals of a skilled work force.
Factories retooled worn and outdated physical plant with modern equipment. Science and technology, much of it a by-product of defense-related research, created new products and led to greater production efficiencies.
It was also a golden age for American labor. Union membership increased dramatically, reaching a peak in the 1950s. One need not have been a union member or agree with every union action to appreciate the contribution that organized labor made to expansion of the middle class. A factory worker with a high school education and a good work ethic could purchase a home and raise a family as a member of the expanding middle class. Much of the growth came from movement of low-income farm workers into better paying jobs in towns and cities - a process largely completed by 1960.
In an effort to avoid mistakes made after the First World War, such as the disastrous Treaty of Versailles that punished Germany and created the conditions that led to, first, hyperinflation, then to the rise of Adolph Hitler, America strived to make capitalist allies of our former enemies - a process made more urgent with the Soviet Union emerging as our Communist rival. American aid of $1.8 billion to Japan and $13 billion to Europe through the Marshall Plan tied reconstruction to American export needs, adding to aggregate demand.
Prior to the Great Depression, during the 1920s, income inequality had increased. The financial crisis of 1929 precipitated the Great Depression of the 1930s. During the post-war economic boom with an expanding middle class, income inequality was reduced, both cause and result of economic expansion. Prosperity during the "Golden Age" was fairly evenly distributed across economic classes.
With memories of the Great Depression still freshly in mind, Americans had no desire to return to economic stagnation and unemployment. Congress passed the Employment Act of 1946, declaring federal objectives of full employment, full production, and stable prices. The act created the Council of Economic Advisors with the objective of analysis and advice on development and implementation of a wide rage of economic policy issues.
Central to macroeconomic stabilization during this golden age was what economists refer to as "counter-cyclical stabilization." During recession, taxes would be reduced and government expenditures increased to moderate the decline. During economic expansion, taxes would be increased and government expenditures curtailed to prevent inflation and keep the economy from overheating.
This Keynesian approach was widely accepted during this era. For example, during the 1953-54 recession, even though Council of Economic Advisors Chair, Arthur Burns, deployed standard Republican rhetoric, he supported an activist counter-cyclical fiscal policy. The recession was mild and short.
On a personal note, I learned my practical economics growing up on that dairy farm in the hills north of Monroe. I learned my academic economics from professors for whom the Great Depression was the defining economic event in their lives. I found no conflict between the practical and the theoretical as I learned it. The application of relevant concepts and theory to solution of real economic issues made perfect sense to me.
While there are technical issues with counter-cyclical fiscal policy, the major problems in its application are political - possible grist for a future column. Keynesian economics fell out of favor about the early 1970s, partly as a result of the rise of the "Monetarist School" of economics, and, arguably, because of ideological opposition - and maybe because memories and lessons of the Great Depression were becoming dim with time.
All told, a lot of things fell into place or were put into place during The "Golden Age of Capitalism." Not all was perfect - farm prices were to fall victim to surplus production in the 1950s, and women and minorities suffered discrimination in the work place.
But after WWII, America had emerged with an economy incomparably stronger than in 1941, larger and richer than any other in the world. American economic domination over at least the next quarter century had been secured.
Next week: More on America's Golden Age of Capitalism.
- John Waelti's column appears every Friday in the Times. He can be reached at jjwaelti1@tds.net.
